What Is Debtor-in-Possession Financing—DIP Financing?
Colbeck Capital Management tells us that Debtor-in-Possession financing (DIP financing) is a special kind of financing meant for companies that are financially distressed and in bankruptcy. Only companies that have filed for bankruptcy protection under Chapter 11 in the United States and the CCAA in Canada can utilize it, which usually happens at the start of a filing. It is used to facilitate the reorganization of a debtor-in-possession (the status of a company that has filed for bankruptcy) by allowing it to raise capital to fund its operations as its bankruptcy case runs its course. DIP financing is unique from other financing methods in that it usually has priority over existing debt, equity and other claims.
DIP financing represents a viable direction for distressed companies that may be cash-poor but have adequate existing assets to pledge as collateral. In return for an influx of cash, a willing DIP lender will typically receive priority status in return, along with a favorable interest rate and perhaps other incentives. Approval, administration, and monitoring by the bankruptcy court is part of the package. DIP financing is in no way a panacea for all corporate financial problems, but it can be beneficial to both the company and the DIP lender. Such financing is always asset-based, with assets at least equal in value to the full amount of any loan. Terms must be agreed to by all other creditors and approved by the bankruptcy court. DIP financing represents a legitimate and monitored solution for any company deemed to have a credible chance of success following a bankruptcy filing.
Since inadequate cash and uncertain cash flow are among the primary reasons for filing bankruptcy, DIP financing is one option to build up financial reserves. A distressed company with enough operating capital will be better able to maintain ongoing operations and meet continuing obligations. At the same time, such funding promises additional time to work on other underlying issues, to resolve management, staffing and logistical concerns, or to take advantage of changing market conditions. Many small-business owners are unaware that such an option exists.
Colbeck Capital Management states that Debtor-in-Possession financing is a specialty financial product that receives special treatment and is afforded particularly favorable protection by the courts. Because of the protections mandated by law, some lenders with relevant knowledge and experience are often willing to make loans to distressed companies that fall under the jurisdiction of U.S. and Canadian bankruptcy courts.
For a company in financial distress, DIP financing is a funding alternative that Chapter 11 bankruptcy filing makes available. It should be viewed as one of the ways to restructure, regroup and re-emerge post-bankruptcy. In addition to time and necessary cash, it provides needed liquidity required to forge a corporate financial turnaround.
About Colbeck Capital Management
Colbeck Capital Management was founded in 2009 by Managing Partners, Jason Colodne and Jason Beckman. Colbeck provides strategic loans to companies going through periods of transition when traditional sources of capital are not readily available. The principles have over 75 years of experience managing credit investing businesses and have underwrote over $22B of total loan volume. Colbeck has offices in New York City, and Los Angeles.
About Jason Beckman
Jason Beckman co-founded Colbeck in 2009 and is a Managing Partner. Prior to founding Colbeck, Mr. Beckman was the Head of Distressed Product Load Sourcing, Fixed Income Currencies and Commodities Division at Goldman Sachs. Mr. Beckman also worked at Deutsche Bank in their Distressed Group.
Mr. Beckman attended both The London School of Economics and Union College.
Jason Beckman’s commitment to philanthropy includes support for the arts as a benefactor of The Metropolitan Museum of Art and Art Production Fund and global humanitarian issues through the International Rescue Committee founded by Albert Einstein.
About Jason Colodne
Jason Colodne co-founded Colbeck as a Managing Partner in 2009. Mr. Colodne is the senior transaction partner at Colbeck and oversees all aspects of investment execution and portfolio management.
Mr. Colodne’s investment experience spans over two decades. Jason Colodne began his career at UBS and Bear Stearns, gaining experience distressed investment and investment banking. Mr. Colodne was the Head of Proprietary Distressed Investing and the Hybrid Lending Group in the Fixed Income Currencies and Commodities Division at Goldman Sachs. Following Goldman Sachs, Mr. Colodne was a Managing Director and the Head of the Strategic Finance Division at Morgan Stanley.
Mr. Colodne has held board seats on multiple portfolio companies and participated in numerous restructuring steering committees. Mr. Colodne is a member of the Young Professionals Organization – Metro New York (YPO), is a Board member of the Centurion Foundation, and a longtime supporter of the Children’s Tumor Foundation. Mr. Colodne is a graduate of the University of Pennsylvania.